The Double-Top Scenario

ES retraced yesterday, which wasn't a surprise, and broke rising support from the last low, which was a surprise. I was talking yesterday morning about the possibility that a double-top for the move from the June low has been forming and I'm going to look at that in more detail today.

I posted the ES 8hr chart below on twitter last night showing the two main topping options here which are a double-top and H&S. The key level for both is last week's low at 1670.50. If we see either form the downside target on a clear break below that level would be in the 1635 area. ES 8hr chart:

Is there any support for that target elsewhere? Well the weekly middle bollinger band is now at 1630 (and rising) so depending on the time taken to reach that target that might well be a very good fit with that target. SPX weekly chart:

On the SPX daily chart the bollinger bands are pinching together. That suggests a strong move soon but doesn't give a direction for that move. An obvious target if we are to see more downside this week is the middle bollinger band, now at 1688, and the daily lower bollinger band is now at 1663. SPX daily chart:

In the immediate term however ES has formed a double-bottom on strongly positive RSI divergence and that is breaking up with a target in the 1693.75 area. There is also an obvious target and significant resistance level not far above there at the cross of the 50 hour MA and broken rising support in the 1695 to 1695.5 area. A clear break back above that would obviously be bullish. ES 60min chart:

On other markets I was looking at the possibility of a double-top forming on oil yesterday and that possibility is very much in play. On a clear break below 102.5 the pattern target would be in the 96.2 area. WTIC daily chart:

GBPUSD 60min, my inverse proxy for USD direction, has broken up to a new rally high overnight and is testing significant resistance in the 1.55 area. I'm not seeing any obvious signal for a reversal back down soon. GBPUSD 60min chart:

That isn't the only chart I've been looking at the suggests more weakness ahead for USD. JPYUSD made a perfect 61.8% retracement of the 2002-11 move at the low a couple of months ago and another possible double-bottom is forming there. The target would be in the 116.5 area and the strong positive divergence on the weekly RSI is supporting at least a strong rally here. JPYUSD weekly chart:

For this morning a rally into the 1693-6 area looks likely on ES. That would fill the overnight gap and very likely test the ES 50 hour MA. What happens there will be significant. A clear break up through the 50 hour MA (hourly close basis) will look bullish and should deliver more upside, a reversal back down there would look very bearish and suggest a move to test last week's low at 1670.50. If we should see the current overnight double-bottom fail, undercutting the overnight low without breaking significantly over 1690, that would also look very bearish.